Cenvat Credit on Service tax on freight outward

By Anchal Bhatter - ACA

As per Cenvat Credit Rules, 2004 cenvat credit on outward transportation is available
only upto “place of removal”.
“Place of Removal” has been defined in Section 4(3)(c) of Central Excise Act, 1944 as
follows:-

“place of removal” means -

(i) a factory or any other place or premises of production or manufacture of the excisable
goods;

(ii) a warehouse or any other place or premises wherein the excisable goods have been
permitted to be deposited without [payment of duty;]

(iii) a depot, premises of a consignment agent or any other place or premises from where
the excisable goods are to be sold after their clearance from the factory;

from where such goods are removed;

sub clause (iii) of section 4(3)(c) states that “place of removal” can be “any other place or
premises from where the excisable goods are to be sold after their clearance from the
factory”.

Thus, it is the sale that is material for deciding as what is the place of removal for the
purpose of Clause (iii) of Section 4 (4)(b) of the Act. Place where excisable goods are
sold can be a place of removal. A place where the goods are sold can be place where the
property in the goods sold passes from seller to the buyer.

According to Section 2(h) of Central Excise Act, 1944, sale and purchase with their
grammatical variations and Cognate expressions, mean any transfer of the possession of
goods by one person to another in the ordinary course of trade or business for cash or
deferred payment or other valuable consideration. Thus, the transfer of the possession of
the goods is the essence of sale. Accordingly, the place of removal for the above purpose
will be the place from where the transfer of the possession of the goods is effected by the
manufacturer to his buyer.

For determining the place of removal, it is required to be ascertained from the terms and
conditions of sale whether ownership and risk of the goods is retained by the seller until it
is delivered to the buyer. If the ownership and risk of the goods is retained by the seller
during the transit than place of removal will be the premises of the buyer. Factory gate of
manufacturer will be ‘place of removal’ if the ownership and risk of goods is transferred
to the buyer at the factory gate.
The above views were confirmed by the Supreme Court in the case of Escorts JCB Ltd.
vs. Commissioner of Central Excise – 2002 (146) E.L.T. 31 (S.C.) wherein it was also
decided that it would not be lawful to draw an inference of retention of ownership in the
property sold by the seller merely by reason of the fact that the seller had insured such
goods during transit to buyer. It is not necessary that insurance of the goods and the
ownership of the property insured must always go together. It may be depending upon
various facts and circumstances of a particular transaction and terms and conditions of
sale.
Hence if the ownership and risk of goods is transferred to the buyer at the factory gate
than Cenvat credit on freight outward is not available. However if the ownership and risk
is retained by the seller during transit of goods than ‘place of removal’ will be the
premises of the buyer and consequently cenvat credit will be available on freight
outward.